James Royal, Ph.D., Bankrate.com
It is a dream for many people to become a billionaire, and even those who have a little fabric to start can plan carefully to achieve this goal. While choosing the right investment is important, if you are starting with relatively small nest eggs, another factor is even more important.
Bankrate spoke with a wealth advisor to get her a way to turn $1,000 into $1 million.
How to convert $1,000 to $1 million
Three simple steps can bring together the process of turning $1,000 into $1 million.
1. Let the time cast a spell
Time is the most important factor that turns small amounts of money into large amounts of money, more than choosing the right investment. Any extras from years that make your money even more complicated can really have a big impact on the total snowballs you can roll up.
“We’ll start investing as soon as possible,” says Andrea Zoeller, wealth manager and partner at Merit Financial Advisors. “There are some research showing investors who start early and save money.
How powerful is it now? Let’s use a simplified example to show the value of starting early by investing $1,000 each year.
– Start investing at age 22 and invest $1,000 a year with a 10% return. If you retire at the age of 62, you could save $40,000 over these 40 years, but that money was raised to more than $440,000 without tax.
– Start investing at age 32 and invest $1,000 a year with a 10% return. If you retire at age 62, you could save $30,000 over those 30 years, but that money went up to $160,000 or more, assuming you’re tax-free.
“When someone starts early in life, money is invested longer, giving you more time to generate compound interest in your life compared to someone who didn’t start until the second half of your life,” Zoeller says.
Tax laws also support investment. You will not pay taxes on Capital Gains until you sell your investment. This means that wealth can be exacerbated for decades without tax resistance.
Does 10% sound like a return too high? In fact, all investors can purchase investments that, on average, are returned about 10% over time.
2. Choose a strong investment
You might think you need to go in and out of the market with the best investments to make $1 million. Certainly, it’s better to make the best investment, but it will work out over time with consistent performers who provide solid returns for most years.
The best solution? Invest in low-cost index funds, says Zoeller.
The Stock Index Fund provides weighted average revenue for all stockholders. Funds based on the S&P 500 index, which includes hundreds of top American companies, averaged around 10% per year over the long term. These types of funds are accessible to anyone with a securities account and do not require any specialized expertise to purchase them.
Low-cost funds keep a lot of money in your pocket and work for you, and you have many options in them. The best S&P 500 index funds charge low fees – usually less than $10 per year for every $10,000 you invest, or even just $3.
3. Keep it over time
It’s easy to overlook, but when it comes to investing, it’s your own worst enemy. It’s because it thwarts your progress by doing what you think is safe or clever. For example, when the market looks rocky and the economy looks rough, it’s easy to sell.
“Time in the market is more important than the timing of the market,” says Zoeller. “As the market is trying to take the time, missing out on the best positive day in the market shows that even if you continue to invest during the down market, it will erode investors’ returns over time.”
Therefore, if you want to achieve the return of the index fund you are investing in, you need to continue investing. Additionally, maintaining your investment will help you avoid paying capital gains tax on your profits. If you sell the winner, you guarantee that the value of your bankroll will be reduced.
“Please hold on,” Zoller says. “Wealth building is a marathon, not race. It takes a lot of time and consistency.”
Our example uses $1,000 as a starting point, but if you can add money to your portfolio over time, you can continue to earn attractive returns, especially when the market drops.
Other tips for building wealth
That’s how you can turn $1,000 into $1 million. Give plenty of time and buy a strong index fund before holding it. Here are some other tips for building wealth.
– Avoiding sales after the market declines. “This is the primary mistake that erodes returns over time, as we don’t know when we’ll return to the market,” Zoller says. “People often get back to the market, after a recovery occurs, so the result is that you could end up lowering sales and buying back at the top before falling another into the market.”
– Get the benefits of tax-free accounts. If you are investing in retirement, it makes sense to use a 401(k) plan or IRA. Both accounts allow you to postpone or avoid taxes on your profits, making your money even worse and faster. Employer 401(k) plans may also pay you matching funds if you contribute, which is the easiest return you can ever make.
– Watch for emotional decisions. When the market becomes unstable, it can feel safe to sell first and ask questions later. “Before you understand what’s going on in the market, be aware that you make irrational decisions based on your emotions and what others are doing,” says Zoller. When selling winners, locking taxes slows down your ability to make money worse.
– Working with experts. Working with a financial advisor can lead to a huge amount of profit. “Experts can guide you through market volatility, make smart investment decisions, and educate you on how to avoid investing mistakes,” says Zoeller.
Through Bankrate’s Advisormatch, you can find a financial advisor to consult in your area.
Conclusion
When it comes to building wealth, time is your biggest ally, but by finding a powerful index fund and holding it, you can really help yourself. Also, if you keep adding it to your account every week or month and earn more money, you will grow your wealth faster.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. Furthermore, investors recommend that past investment products performance is not a guarantee of future price increases.
©2025 Bankrate.com. Distributed by Tribune Content Agency, LLC.
Original issue: March 4th, 2025, 3:56pm EST
